If you are a Canadian resident (but not a U.S. citizen) who spends significant amounts of time in the U.S. for either work or leisure, you may be required to file U.S. federal income tax returns. That’s because, under U.S. law, you may be considered a U.S. resident as well as a resident of Canada.
You’re considered a U.S. resident if you hold a green card or if you meet the “substantial presence” test.
You have a “substantial presence” in the U.S. if you spend at least 31 days there during the year, and the result of a prescribed formula for presence in the U.S. is equal to or greater than 183 days.
The prescribed formula for 2009 is as follows:
- The sum of the days you spent in the U.S. in 2009
- Plus one-third of the number of days spent there in 2008
- Plus one-sixth of the number of days spent there in 2007
This means that people who regularly spend four months a year in the U.S. will be considered a resident under this test, and should be filing the Internal Revenue Service (IRS) “snowbird form,” (form 8840), as described below. This form should be filed even if you have no income from U.S. sources, in order to avoid reporting of your worldwide income on a U.S. tax return.
Certain days you spend in the U.S. are not counted for this test, including:
- Days you spend commuting to work in the U.S. for at least 75% of total workdays in the year
- Days you spend in the U.S. beyond your intended stay due to a medical emergency
- Days spent in the U.S. by certain students
Even if you meet the substantial presence test, however, you won’t be considered a U.S. resident if, for the entire year, you have a “closer connection” to another country. A closer connection means that you:
- Were present in the U.S. less than 183 days during the calendar year
- Have a tax home in another country for the entire year
- Establish that you have a closer connection to that tax home compared to the home you have in the U.S.
- File a closer connection statement – IRS form 8840, “closer Connection Exception for Aliens Statement” – by the tax return due date, including extension to file
The normal tax return filing due date is April 15, but for individuals without U.S.-source employment income, the due date is June 15. This filing is often called a “snowbird filing,” since Canadians who spend the winter in the U.S. each year and meet the substantial presence test must file this statement to avoid being treated as U.S. residents and subject to U.S. tax on their worldwide earnings.
If you’re considered a resident of both Canada and the U.S. under each country’s domestic tax law, you can avoid double taxation on worldwide income by being treated as a resident of either the U.S. or Canada under the Canada-U.S. Tax Treaty.
Non-residents who take advantage of the treaty to reduce their U.S. tax liability, including those who claim non-resident status under the treaty, are required to file a U.S. treaty disclosure form attached to form 1040NR. This return is due on April 15 of the following calendar year for people who have U.S.-source wage income. In all other cases, the date is June 15 of the following calendar year. Failure to file a treaty disclosure return could result in a minimum penalty of U.S. $1,000.
As a taxpayer, you have many options to consider. If you wish to discuss your particular situation with Joe Truscott, please contact Joe at 905-528-0234 or by e-mail at email@example.com.